Liquidity in crypto refers to how easily an asset can be bought or sold without significantly affecting its price. High liquidity means there's a large number of buyers and sellers, so trades happen quickly and at stable prices. Bitcoin and Ethereum, for example, are highly liquid due to their popularity and trading volume.
Low liquidity, on the other hand, can lead to price slippage—where the final trade price is much different from what you expected. This is common with smaller or newer tokens that don’t have many active traders. Low liquidity can also make it harder to exit a position, especially during market volatility.
Liquidity is crucial for a healthy trading environment. It impacts everything from the ease of entering/exiting trades to price stability. Centralized exchanges often provide deeper liquidity, while decentralized exchanges rely on liquidity pools. Whether trading or investing, always consider liquidity before making a move—it can significantly affect your results.
